S&P 500

VIX and S&P 500: what’s next?

In an almost unnatural situation, with the S&P 500 Index going up whatever happened, at the end of January the correction arrived and the excesses were finally eradicated. But while professional traders had some relief with the arrival of this event, they were also concerned about the way the fall occurred: unexpectedly too fast and deep, almost -12% in a couple of weeks, and with an unthinkable increase in volatility.

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What history can tell us about the actual S&P 500 behaviour?

Looking to the financial markets it is always a human game. Fear and greed are always present. In these last periods we can note two human sentiments facing each other: on the one hand, increasing optimism, which is an anticipation of future greed: stock markets continue to rise steadily with such low volatility that the market’s fractality has been temporarily replaced by an incredible linearity.

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The New Presidential Cycle and the Recurring Patterns

A new presidential cycle just begun in the USA and the stock market has welcomed 2017 with a bullish note. The S&P500 rose about 7% in the first two months of the year, the month of March has started in a corrective mood and the market retreated a bit still leaving the progress around 5% year-to-date.

It was a hefty start, that could well lead to a seasonal top. At the moment, we see the recent high of March 1st, near 2’400, above 21’000 for the Dow Jones Industrial, as a strong resistance, but it is interesting to compare the bullish wave of these recent weeks with the recurring cyclical patterns. First, we note that a healthy February is not so common. February is used to be a sluggish month for Wall Street, even worse in the first year of the presidential cycle with an average return, for the 16 occurrences since 1953, of -1.83%. In figure 1 is shown the average historical yearly pattern of the S&P500 since 1952 compared with the average of returns in the first year of the presidential cycle. They are very similar, even if the first of the four years term tends to be a bit more volatile and less performing. Usually, February and August are the worst months followed by June and September.

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